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India Growth Story

By Shail Mehta

12 May, 2007

India has come out with robust growth of around 9%, is it because of reforms? Or global payer? Or is it our loose fiscal and monetary policy? What are the fundamental changes which are responsible for India’s rapid growth? Economists, as usual, seek practical and verifiable answers; and we shun cultural and sociological reasoning whenever possible. But I think it is a more powerful force which has been guiding all the recent changes in India, the risk taking ability of youth. Risk is indeed an economic concept – and an often measured one. It is usually applied to an individual’s risk aversion; a company or a country’s risk-premium; and generally for all significant financial transactions. What I’m trying to refer to, however, is a far broader change in the way Indians perceive risk, and how we respond to it. Firstly – in what is now a common refrain – the private sector has completely transformed. Not only the private sector, the public sector enterprises have also drastically changed the way they work. Managers are beginning to accept the idea of relinquishing control, and are looking for creative sources of capital. Companies are getting aggressive with their expansion plans – sometimes too aggressive. Some corporates have even picked up a taste for overseas acquisitions(TATA`s). There is an unmeasured commonality to all of this. Marketing gurus would call it “renewed self confidence”; cynics would call it dumb luck; I call it ‘taking risks’. Now the risk tolerance is not confined to the merchants of wealth alone – it is gradually beginning to infect the government too.

 Begrudgingly, it is either internally corporatizing; listening to outside voices and sharing responsibility; or in some cases, completely moving out of the way in areas where it knows it is underperforming: infrastructure, finance, education, health. Its manner of doing so is bumbling and idiotic (for instance the recent SEZ debacle), but the change in its intention is mostly clear. Of course, our politicians have fickle wills so that could quickly change – were it not for the third, and most important observation. Indian families and individuals, are also becoming bigger risk takers, now they prefer investing in stock markets rather than putting their money in banks & post office deposits. I am a tail-ender in the great reverse migration – expats returning to India to take advantage of the new opportunities that are coming available. Two or three years ago, that was impossible.

Today, for young people, the potential long-term rewards of returning to fast-growing India could be far greater than those from working on an overstretched Wall Street. More fascinating than even the NRIs’ new risky behavior are the choices being made by the people I know in India. With more careers for their kids to choose from, parents from all income strata are seeing the value of a good and practical education and bypassing the government when necessary. Other examples abound: people are travelling a lot more for work, women are gradually entering the labor force. The introduction of the culture of risk at this grassroot level ensures that all the other pieces move – that the government and companies are given the message to change.

This new inflexion point in our behavior is at least partially the result of the burgeoning young population. And no one can really doubt that it is the old guard who are reluctant to admit that the doctrine of governing a society through babudom has lost. Also with increase in the income levels due to the outsourcing industry the living standard & consumption is incresing rapidly which indeed is increasing the growth rate. So we can conclude that the Indian youth is the fountainhead of this growth and we need the participation of the youth to sustain this growth. Author Shail Mehta www.bullrider.in